On Wednesday, the U.S. Federal Reserve surprised markets when they announced that they had no intention of curtailing the existing quantitative easing program as the U.S. economy had not sufficiently recovered enough to satisfy the members of the FOMC. Growth forecasts for the remainder of 2013 and into 2014 were also cut, with Ben Bernanke citing economic strains as a result of tight fiscal policy. Market consensus of the Fed decision had been for a modest $10 billion monthly tapering of the bond-purchasing scheme. Afterward, the U.S. Dollar Index plummeted to a 7-month trough versus a weighted basket of peers and was trading 1.2% lower, the largest single day’s drop in more than 8-weeks.
As reported at 11:18 a.m. (JST) in Tokyo, the USD/JPY pair slipped to a low of 97.76 Yen, a 3-week trough, before edging up to 98.24 Yen While the EUR/USD pair jumped to $1.3543, an 8-month peak. The AUD/USD pair soared to $0.9530, a 3-month high, which analysts believe will be distressing news for the Reserve Bank of Australia which had hoped to keep the Aussie weaker in order to help boost the economy there.
New Fed Expectations
Markets had already priced in a tapering and have to reevaluate; currency analysts now believe that the Fed might begin to taper the program later this year and end the scheme completely by mid-2014. In a client note, analysts from Barclays say that their expectations of an interest rate hike have now been pushed back to mid-2015.